Question

Glen Avon Inc. specializes in the production of telecommunication satellites. The company has

a 6-month fiscal end on December 31 and June 30. In 2004 the company decides to expand their

operations and finances it by issuing 4,000 bonds at a 14% coupon rate (annual). The bonds pay

interest on October 31 and April 30, and are due on April 30, 2019.

a. (3 points) Assuming the bonds are issued on April 30, 2004 at 104, record the journal

entry(ies) for the issue.

b. (5 points) Record the proper adjusting entry(ies) for the 6-month fiscal end on June 30, 2004.

c. (4 points) Record the interest payment on October 31, 2014.

d. (8 points) On November 30, 2014, the company purchases 90 percent of the bonds back at

110 plus accrued interest. Record the proper journal entry(ies) for the repurchase.

Answer 1

Let The par value be $ 1000 .So ISsue price will be 1000*104/100 = 1040

Number of years = April 2019-April 2004 = 15 years

Per Year amortisation of premium : 160,000/15 = 10666.67 per year

Date	Acount	Debit	credit
April 30,2014	cash [4000*1040]	4160000
	Premium on Bond payable		160000
	Bond payable [4000*1000]		4000000
	[Being Bond issued at premium ]
June30,2004	Interest expense	91555
	Premium on Bond payable [10666.67*2/12]	1778
	Interest payable [4,000,000*.14*2/12]		93,333
	[Being Interest accrued for 2 months 1May -30 June]
October 31 2014	Interest expense	183111
	Interest payable	93,333
	Premium on bond payable [10666.67*4/12]	3556
	cash [4,000,000*.14*6/12]		280000
	[Being interest accrued for 4 months( 1july-31oct) and paid for 1semiannual month]
Nov 30,2014
a	Interest expense	41200
	Premium on bond payable [10666.67*1/12*.90]	800
	Interest payable [4000000*.14*1/12*.90]		42000
	[Being interest accrued on 90 % bond for one month 1 nov-30 nov]
B	Bond payable   [4,000,000*.90]	3,600,000
	Premium on Bond payable [153866*.90]	138479
	Interest payable	42000
	Loss on Repurchase of bond	661521
	cash   [(4,000,000*110/100)+42000accrued interest]		4442000

**30Nov : Balance in Premium on bond payable:160000-1778-3556-800=153866